Top three outcomes of the Internet of Things

At a recent IoT Executive Summit hosted by SAP, Andrew McAfee, Co-Director of MIT’s Initiative on the Digital Economy and Principal Research Scientist at the MIT Sloan School of Management, described three key outcomes of IoT: Machines will learn; platforms will displace products; and improved use of resources and working smarter.

1. Machines learn

Businesses have traditionally had limited insight into what happens in the field: in customers’ homes/offices, at distributors, in stores, in transit, on shop floors. By capturing continuous data from sensors in the field, meaningful insights can be derived.

Machine learning, combined with data science and other artificial intelligence disciplines, helps separate the signal from the noise in these data streams. A leading analyst firm refers to this as the Algorithm Economy.

IoT provides the scale of data that machines require in order to learn.

2. From products to platforms

A platform is a digital space to match supply and demand and to transact business, like Uber. Platforms have huge advantages over traditional product offerings including the ability to harness network effects, to own the customer experience, and to find insights in the valuable platform data.

IoT creates new platform opportunities for the innovators ready to build them.

3. Dematerialization

We’re increasingly substituting atoms, the smallest unit of physical matter, with electrons, an element of an atom itself. In short, humans are relying less on physical resources and instead working smarter. Examples include better utilization of acreage and water in farming and a decline of petroleum consumption.

IoT will accelerate dematerialization by enabling us to work smarter.**

Why are these insights so important?

IoT has the potential to generate up to $11 trillion in value by 2025 according to Jeremy Schneider, Partner and Co-Leader of Global Software Practice at management consultancy McKinsey.

Schneider further described IoT as having the greatest potential impact of any technology out there today. As a key enabler of the Application Economy, those who understand the outcomes of IoT are far better positioned to monetize its value.

Road ahead

Connecting heavy equipment, appliances, and even people, with sensors enables businesses to learn from what is going on in the real world. Consider how much we as humans rely on our five senses as the basis for our learning.

The byproduct of this learning is, minimally, the ability to operate at even higher levels of efficiency or, at the other end of the spectrum, finding entirely new, disruptive business models. Online companies like Amazon and Facebook have long understood the benefits of using connected data to guide their activities – what the military refers to as “situational awareness.”

Challenges exist

As with most new technologies, the path is not entirely clear and hurdles exist. With IoT, the challenges revolve around a few common themes: data privacy and security, end-to-end integration and data rights.

For example, who owns the rights to data generated by a connected car? The automobile manufacturer, the individual component manufacturer, the car dealer, the car owner? The security of endpoints is another fundamental challenge.

Business imperative

Business leaders interested in the IoT opportunity need to move quickly. Schneider explains that 38 percent of companies already have a strategy in place and are in the exploratory stage while 19 percent have deployed IoT at scale.

With all the potential value enabled by IoT, perhaps the most important guidance shared at the summit was foreshadowed by McAfee’s closing prediction: “leading firms in most industries and geographies will be very different in 20 years than they are today.”

The guidance: join leaders like Porsche, Siemens, UnderArmor and others and innovate from a position of strength.